The Dark Cloud Surrounding Italy

21 November, 2013

The latest EU GDP confirmed what the ECB has been telling us for months, the EU economic recovery is indeed fragile. While the majority of the attention has been on France’s unexpected economic contraction, coupled with an indication that Germany’s growth is slowing, many have not brought to our attention that another country who contracted, Italy, are in trouble. 

The Italian economy has contracted for nine consecutive quarters. This is not good news for the EU’s third largest economy and second biggest manufacturer. Italy has contracted by over 2% throughout the past year. Out of all the countries in the EU, Italy has the slowest growing economy.

Furthermore, their debt to GDP ratio is 127%. Far above the EU average of 92%.

Where the suffering has been felt:

A recent study from the London School of Economics identified that over 31,000 Italian companies have gone into bankruptcy this year alone. Job redundancies are coming fast.

In fact, Yahoo Finance has reported that among three of Italy’s retail banks, there will be at least 15,000 job cuts over the next year. Reuters has identified that in order for Italy’s banks to maintain afloat, corporations need to cut their staff workforce by at least 30%.

The Wall Street Journal has reported that in October alone, Italian car sales depreciated by 5.6% in comparison with September. Bearing in mind that Italy is the EU’s second largest manufacturer, and home to cars such as Ferrari and Fiat, this may encourage further job losses.

Furthermore, the Italian housing sector is deeply suffering. Home sales have plummeted by 38% this year and in 2012, the value the average house depreciated by 25.8 %. Finally, another one of Italy’s major contributors to GDP growth is in decline. Industrial production has dropped by nearly 4% this year. ISTAT (Italian National Insitute of Statistics) has stated that industrial production has declined by 24% since 2009.

Unemployment and poverty:

Italy’s current unemployment rate is their highest since 1977, at 12.5%. Even more worryingly, youth unemployment equates to 40.4%.  There were already concerns regarding  a recent revelation that the number of people living in poverty in Italy, has nearly doubled to around 5 million over the past five years.

Final thoughts:

It should not be underestimated, or forgotten how important the Italian economy really is for the EU.

In fact, ECB board member, Joerg Asmussen declared very recently that “the future of the euro area will not be decided in Paris, or Berlin. It will be decided in Rome”.

Written by Jameel Ahmad, Currency Analyst at Blackwell Global

Follow Jameel on twitter @JameelAhmadFX.

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